Madison Small Cap Fund, managed by Madison Funds, released its Q1 2026 investor letter. A copy of the letter is available to download here. The Madison Small Cap Fund (class I) increased by 0.10% in the first quarter, trailing behind the Russell 2000 Index (up 0.89%) and the Russell 2500 Index (up 2.04%). Despite slightly underperforming the benchmark in the quarter, core positions and IT investments showed solid performance. From a style perspective, value stocks outperformed growth, with the Russell 2000 Value Index rising ~4.5% and the Russell 2000 Growth Index falling almost 3%. The outperformance of the value is driven by weakness in speculative names aligning with the Fund’s style and preference for quality, profitable franchises. The Fund believes the market volatility, influenced by AI concerns and geopolitical tensions, presents a potential opportunity for patient investors. Please review the Fund’s top five holdings to gain insights into their key selections for 2026.
In its first-quarter 2026 investor letter, Madison Small Cap Fund Strategy highlighted Matador Resources Company (NYSE:MTDR). Matador Resources Company (NYSE:MTDR) is a US-based independent energy company engages in the acquisition, exploration, development, and production of oil and natural gas resources. On June 11, 2026, Matador Resources Company (NYSE:MTDR) closed at $53.62 per share. One-month return of Matador Resources Company (NYSE:MTDR) was -11.14%, and its shares gained 3.83% over the past 52 weeks. Matador Resources Company (NYSE:MTDR) has a market capitalization of $6.66 billion.
Madison Small Cap Fund stated the following regarding Matador Resources Company (NYSE:MTDR) in its Q1 2026 investor letter:
“Matador Resources Company (NYSE:MTDR) is a Delaware Basin Exploration and Production (E&P) company founded in 2003. The midstream asset is a joint venture that moves oil, gas, and water in and out of the Permian Basin. Production has grown 28% per annum since its Initial Public Offering (IPO). Matador has an entrepreneurial culture and a high level of employee ownership, with its CEO and founder, Joe Foran, personally owning ~4% of the shares. The company is an innovator in drilling design and has excellent well-based economics. The company also has Delaware-focused midstream assets, which have growing value as gas and water cuts increase in the basin.
MTDR trades at 3.3x enterprise value to earnings before interest, taxes, depreciation, and amortization (EV/EBITDA), and sub-3x if we consider the midstream assets, a discount to its peers and our comp group. MTDR also trades at 9.8x earnings versus 15x for the group. We view this as compelling given the hidden midstream asset and the premium nature of MTDR’s acreage. Our intrinsic value estimate of $95 is based on 5x EV/EBITDA, supported by increasing free cash flow yield.”
